1. Opportunities for facilitating private sector investment in cassava processing technologies in Malawi
V. S. Sandifolo1, V. Kaitano1, J.D.K. Saka1, A. Sergeant2, A. Graffham3 and L. A. Abayomi3, M. Shaw4
1Chemistry Department, Chancellor College, University of Malawi, P.O Box 280, Zomba; 2ATS Accord Associates, UK
3Natural Resources Institute, University of Greenwich, UK; 4Welspring Consultancy film, Blantyre, Malawi
Abstract
Investment in cassava processing technologies has been restricted to smallholders who have largely benefitted from donor funded projects in Malawi. Individual large scale private sector involvement has been low. Economic studies showed that there were opportunities for establishing HQCF value chain. Therefore, private sector involved in the implementation of C:AVA project in Malawi and factors that facilitate their investment decisions were determined. Lessons have shown that large scale private sector involvement and investment has great potential to unleash benefits to smallholder growers, processors and all players in the value chain. The benefits are cash incomes from direct sales of fresh roots, wet cake, high quality flour, import substitution and creation of new employment opportunities. The enabling factors in Malawi are (i) appropriateness of processing technology, (ii) skills to engage and demonstrate benefits of the new technology to investors, (iii) market information , (iv) aligning new investment to company corporate social responsibility, (v) creating sustainable supply chain of raw materials, (vi) continuous provision of technical information and (vii) other external factors such as political will and shortage of forex. Hence private sector participation in the various value chains is critical to creating sustainable markets for growth of agriculture based economies.
Introduction
The cassava sub-sector has an important role in expanding rural livelihoods, leading to increased rural household incomes and therefore reducing rural poverty in sub Saharan Africa including Malawi. Cassava is the second major staple food crop after maize and is staple food for over 30% of the population especially those living along the shores of Lake Malawi. Importance of the crop fluctuates with seasonal variation in weather patterns such that it becomes a major food security crop when the country experiences drought conditions. Despite the massive potential for production and other advantages that the crop offers such as starch and high quality flour (HQCF) which has a lot of industrial application, processing is extremely limited due to lack of private sector involvement. Until recently, the investment in cassava processing technologies by the private sector has been limited.
The Cassava: Adding Value for Africa (C: AVA) project was initiated to stimulate and expand markets for HQCF in five African countries: Nigeria, Ghana, Tanzania, Uganda and Malawi. Economic analysis of HQCF production showed that there was potential for establishing a profitable industry in Malawi. Malawi has two value chains, using sun-drying for rural markets and artificial drying for bigger industrial markets in an effort to commercialize HQCF. The artificial dried value chain , which is highly dependent on private sector players entails major investment decisions; huge financial resources are required . The objective of the study was to determine critical factors that facilitate private sector investment in HQCF processing technologies and catalysing sustainable value chains for the benefit of smallholder farmers and processors in Malawi. This paper concerns factors that facilitate investment decisions by large scale private sector which create sustainable market and employment opportunities for resource poor households.
Methodology
A value chain analysis was undertaken at the onset of the project to understand the existing cassava value chain, main players, areas of production, available processing technologies, markets and prices for cassava products. The value chain study provided input into strategy development which focussed on pursuing two value chain of sun-drying and artificial drying. A study tour was organized for potential investors in flash dryers and end-users of HQCF to Nigeria to learn how the industry evolved, understand more about the technology, agriculture practices, supply chains, market dynamics and policy. A analysis was subsequently done to inform how best to deal with the gaps and opportunities for the greater participation of the private sector.
Table 1: Demand for HQCF and prices as estimated by the value chain study in Malawi
Market type
Wheat flour demand (t)
Estimated HQCF (t)
HQCF prices
(MK/t)
Price drivers
Supply chain
Millers
49000
4900
168000
Wheat flour processing costs
Artificial
Rural retail
36000
7200
189000
Processing & transport costs to rural areas
sundried
Biscuit
10000
2500
144000
Cost of wheat flour
Paper board
4000
224164
Cost versus delivery to factory gate
Others 78
Total
99,078
18,678
Results and discussion
There are increasing opportunities for cassava to contribute to rural household incomes through involvement of the large scale private sector in Malawi. Return on capital and other strategic issues such as alignment of new investment to company social responsibility, creating sustainable supply chain of raw materials, appropriateness of processing technology, market information, supply of technical information and other external factors facilitate the private sector to make investment decisions.
For example, the total HQCF market was estimated at 18,600 tons/year which was sufficient for both SMEs and commercial processors to supply to. (Table 1). The different market segments offered varying prices with the paperboard offering the highest. Therefore the model for engaging commercial processors should include the highly profitable markets to make the investment viable. (Fig. 1). Involvement of commercial processors enhances added benefits to the value chain; HQCF reaches certain market segments which have strict quality, volume and supply schedules requirements such as the paperboard and biscuit industries. Further, the number of beneficiaries and overall sustainability of the value chain increased
Commercial processors therefore are better placed to negotiate for good prices with industrial end users; thus more benefits to the village processing units
It was possible to facilitate anchor production model with contracts between commercial farmers and smallholder cassava growers which guaranteed supply of raw materials for the value chain
Acknowledgement
We are sincerely grateful to Bill and Melinda Gates Foundation for providing financial resources for implementing this work.
We also thank all participating industries, SMEs, farmers and village processors for taking active part and the communities in the C:AVA Project locations
References
FAO Global cassava market study: Business opportunities for the use of cassava. Proceedings of the validation forum on the global cassava development strategy. Volume 6. FAO, Rome, 2004
Marchant, A. 2009: Cassava drying investigation in Nigeria and Ghana -Consultancy report.
Ministry of Agriculture, Malawi Agriculture sector wide approach: a prioritized and harmonized agricultural development agenda.
Shaw, M. 2010: The private sector and creating markets for HQCF in Malawi
Sergeant , A. 2009: Market and financial observations for HQCF in Malawi.
Conclusions
The private sector are interested to invest in cassava processing technologies when they see clear benefits. Return on capital and other strategic issues are of utmost importance for investment decision making
Smallholder farmers, processors and all players in the value chain benefited through creation of sustainable market opportunities and direct employment at all levels of the value chain
Involvement of commercial processors facilitated the HQCF value chain to target certain market segments that would not have been possible with sun dried one.
The involvement of large scale processors enhances sustainability to the HQCF value chain and could be replicated in agro based economies similar to Malawi. Systematic approach needs to be followed to engage them to make investment decisions.